A-REIT – OCBC

FIRST ACQUISITION IN THREE QUARTERS

• Raising S$406.4m via placement
  
• Acquisition yields at around 6%-handle
  
• Raising FV to S$2.60
  

Private placement of 160m new units

Ascendas REIT (A-REIT) has raised gross proceeds of ~S$406.4m through a private placement to institutional and other investors last Friday. The number of new units to be issued was up-sized from 140m units to 160m units (7.1% of total units outstanding) due to positive market demand. Issue price was fixed near the upper end of the indicative price range of S$2.50-S$2.55 at S$2.54 apiece. This represents a 35.1% premium to A-REIT’s NAV and a slight 4.2% discount to the last transacted price in its units. An advanced distribution of 2.70 S cents is expected to be paid on 25 Apr.

Proceeds to be used mostly for acquisitions

Management intends to use 31.0% (S$126.0m) of the gross proceeds to fund the potential acquisition of a property within Singapore Science Park II, another 66.4% (S$270.0m) to partially fund the potential acquisition of an integrated industrial mixed-use property at Kallang Avenue (currently under construction; value expected at ~S$490.0m), and the remaining amount for issue expenses and corporate/working capital purposes. We note that the upfront land premium introduced by JTC at the start of 2013 does not apply to both the Science Park II property (non JTC-leased site) and Kallang Avenue property (part of industrial government land sales). We project the initial NPI yields for both assets to come in at around the 6%-handle, comparable to A-REIT’s implied portfolio yield.

Maintain HOLD on valuation grounds

A-REIT anticipates its aggregate leverage to increase slightly from 32.8% as at 31 Dec 2012 to 34.6%, assuming that the potential acquisitions and committed investments are funded immediately after the placement. However, as the Kallang Avenue property is expected to obtain TOP only around mid-2014, we believe part of the proceeds may be used to repay debt pending its deployment. This is likely to improve its gearing to 30.3%, according to our estimates. We now factor in the proposed acquisitions and placement into our forecasts. This raises our fair value from S$2.43 to S$2.60. However, as A-REIT appears to be fairly priced, we maintain our HOLD rating.